PRODUCTION INPUTS Matti Lievonen, President June...
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UPM – FRONTRUNNER PRODUCTION INPUTS Matti Lievonen, President June 2, 2008 Nordland
Transcript of PRODUCTION INPUTS Matti Lievonen, President June...
UPM – FRONTRUNNERPRODUCTION INPUTS
Matti Lievonen, PresidentJune 2, 2008 Nordland
UPM 2
Fiber – diversified and integrated
Energy – self sufficient and cost competitive
Presentation outline
Paper production key inputs
Logistics – cost competitive
Sourcing – global approach
UPM 3
Access to competitively priced energy and wood are keys
PRODUCTION KEY INPUTS Magazine paper: energy and wood
0 % 25 % 50 % 75 % 100 %
LWC
SC
Wood Chemical pulpRCP EnergyChemicals Other
Energy and wood are the biggest input cost items in a typical magazine paper mill
Typical magazine paper production costs at mill
Source: Pöyry
10
12
14
16
18
20
22
24
26
2004 2005 2006 2007 2008
Spruce Pine Birch
Pulpwood in Finland €/m3
Source: Metla
0102030405060708090
2004 2005 2006 2007 2008 2009 2010 2011Spot EEX Spot Nordpool Futures EEX Futures Nordpool
Electricity €/MWh
Source: EEX, Nordpool
UPM 4
RCP and energy represent roughly half of typical newsprint production costs at mill
8090
100110120130140150160
2006 2007 2008
ONP/OMG 1.11
PRODUCTION KEY INPUTS Newsprint: RCP and energy
0 % 25 % 50 % 75 % 100 %
Wood Chemical pulpRCP EnergyChemicals Other
Access to competitively priced RCP and energy is crucial
Typical newsprint production costs at mill
Source: PöyrySource: FOEX
RCP price index, Jan 2006 = 100
0102030405060708090
2004 2005 2006 2007 2008 2009 2010 2011Spot EEX Spot Nordpool Futures EEX Futures Nordpool
Electricity €/MWh
Source: EEX, Nordpool
UPM 5
Chemical pulp is the most important raw material in fine papers
8090
100110120130140150160
2004 2005 2006 2007 2008
Bleaching chemicals Coating materials
Chemicals price index, Jan 2004 = 100
350
400
450
500
550
600
650
2004 2005 2006 2007 2008PIX NBSK DATES PIX BHKP
PRODUCTION KEY INPUTS Fine paper: chemical pulp
0 % 25 % 50 % 75 % 100 %
WFU
WFC
Wood Chemical pulpRCP EnergyChemicals Other
Access to competitively priced pulp is crucial
Typical fine paper production costs at mill
Pulp price €/t
Source: Pöyry
Source: FOEX
Source: FOEX
Source: UPM
UPM 6
Fiber – diversified and integratedEnergy – self sufficient and cost competitive
Presentation outline
Important paper production input factors
Logistics – cost competitive
Sourcing – global approach
UPM 7
Self-sufficient in chemical pulp
– Including own production and entitlement to Botnia's production (1,750,000 tonnes)
Diversified fiber portfolio
– Hardwood pulp – Uruguay, Kymi, Pietarsaari
– Softwood pulp – 100% from own mills
– Mechanical pulp
– RCP – paper mills close to raw materials, customers
Diversified fiber portfolio enables development of different fiber mixes
10% of wood consumption from own forests
FIBERDiversified fiber base
0
20
40
60
80
100
2000
2001
2002
2003
2004
2005
2006
2007
Recycled fibre pulpMechanical pulpChemical pulp
Fibres used in UPM's paper production, %
UPM 8
FIBER Pulp production and consumption
2,305Recycled fiber pulp
2,983Mechanical pulp
3,561Chemical pulp
Pulp consumption
8,849Total
7,844Total
448-From associated company*
2,942Mechanical pulp
2,305Recycled fiber pulp
Chemical pulp
Pulp production
2,149-Own production
20071,000 t/a
* Uruguay adds 0.5 million tonnes, total entitlement 2008 1.75 million tonnes
UPM 9
FIBERAssociated company Botnia- 47% ownership
FinlandFive mills, capacity 2.75 million tonnes– UPM's entitlement 1.2 million tonnes– In 2007, UPM used 0.4 million tonnes
UruguayEucalyptus pulp capacity 1 million tonnes– UPM's entitlement 0.5 million tonnes
Start up in November 2007Total investment cost: 1,200 mill. USDUPM uses the pulp mainly in its mills in China and Central Europe
RussiaSawmill, capacity 200,000m3
UPM 10
FIBERBenefits of own Southern Hemisphere pulp
Case standard copy paper 80 gsm delivered to Frankfurt, Germany
Integrated pulp and paper
production in Latin America
Own pulp mill in Latin America,
paper production in Germany
Market pulp based paper production in
Germany
Avg. difference in delivered cost
*Efficiency in cross continental pulp logistics compensate the additional pulp drying and energy cost.
*Timely response to customer demands requires paper production close to customers.
+0 - 20 €/t*
+ 200-250 €/t
Source: Pöyry and company own data
UPM 11
FIBERUPM is the largest de-inkerin printing papers in Europe
Source: Pöyry, UPM
430
450
550
820
1000
1100
1260
1500
2100
3000
0 500 1.000 1.500 2.000 2.500 3.000 3.500
Metsä Tissue
Matussière & Forest S.A.
LEIPA
Palm Group
SCA
Holmen
Myllykoski Corporation
Norske Skog
Stora Enso
UPM
'000 tonnes
UPM 12
A s u k a s t ih e y s /k m ² A lu e id e n lk ma lle 1 5 0 ( 2 2 6 )1 5 0 - 2 4 9 ( 1 2 4 )2 5 0 - 5 0 0 ( 5 6 )y l i 5 0 0 ( 3 7 )
A s u k a s t ih e y s e r ä is s ä E u r o o p a n m a is s aN U T S 2 - ja N U T S 3 -a lu e it ta in ( 1 9 9 8 ) .
T ila s to k e s k u s
V a r s o v a
M a d r idL is s a b o n
W ie nZ ü r ic h
P r a h a
K ö ö p e n h a m in a
R o o m a
D u b l in
Source: Central Statistical office of Finland
Population density and UPM's RCP using newsprint mills
FIBERRCP - efficient mills close to rawmaterial and customers
UPM 13
26,8901,5721,017Total
90--Estonia2901603Great Britain860184-Russia
640--Germany1,020--Austria
7917
-
918
Own forests, 1,000 ha
520650*
490
22,330
Wood consumption, 1,000 m³
-953
-
275
Leased and managed forests, 1000 ha
USACanada
France
Finland
FIBER Wood consumption 2007
* Miramichi was closed in 2007
UPM's share of Botnia's wood consumption approx. 2 million m3
Uruguay will consume approx. 3.5 million m3, UPM's share half
UPM 14
Efficient use of wood raw material
Forest biomass
• forestry• harvesting• sorting
on site• drying
Pulpwoodfor pulp andpaper
Forest residuesSmall woodStumps
PlywoodSawn timber
PulpPaperCardboard
ElectricityHeatBiodiesel
Logsfor woodproducts
Recycling
UPM 15
Fiber – diversified and integrated
Energy – self sufficient and cost competitive
Presentation outline
Important paper production input factors
Logistics – cost competitive
Sourcing – global approach
UPM 16
Self-sufficiency of electricity generation
– UPM 79% of consumption, Finland 100%
Cost competitive electricity generation portfolio
– Mill-site integrated CHP 26% of consumption
– Nuclear power 25% of consumption
– Hydropower 18% of consumption
TVO's new nuclear power plant starts in 2011
– Adds 3.5TWh, raising self-sufficiency
– Share of nuclear power increases to 44%
CO2 free energy sources in energy production
– globally over 60% and in Finland over 75% of fuels used on-site are biofuels
ENERGYSelf sufficient and cost competitive
UPM 17
ENERGY Rising fuel costs raise power prices
Hydro Nuclear Oil
Pea
k
CO2 emission allowances
Electricity market price
European power market structure, simplified
Power market price normally covers variable costs (fuel, CO2, etc.) of the marginal power generation formTypically coal condensing power is in the marginFuel prices have been rising (oil, gas, coal) Phase II in the EU emission trading scheme started in 2008, raising CO2 prices
CoalCCGT Gas
Volume (TWh)
UPM 18
ENERGY UPM has competitive electricity generation structure
Hydro NuclearCHP Condensing
CO2 emission allowances
UPM's power generation structure, simplified
UPM's power generation structure is attractiveMore than 50% of UPM'spower generation is hydro and nuclear power, and one third is CHP at mills, largely based on biofuelsFuel and CO2 costs affect UPM's energy costs far less than the market price of electricityTVO's new reactor will add 3.5TWh of nuclear power, starting in 2011
Volume (14 TWh)
UPM 19
0
500 000
1 000 000
1 500 000
2 000 000
2 500 000
3 000 000
1990 1992 1994 1996 1998 2000 2002 2004 2006
tCO2
0
1 000 000
2 000 000
3 000 000
4 000 000
5 000 000
6 000 000
tons
t/CO2 Paper Production
ENERGYFossil CO2 emissions of UPM's paper and pulp mills
On Site Emissions of Fossil CO2 and Pulp and Paper Production
0
1 000 000
2 000 000
3 000 000
4 000 000
5 000 000
6 000 000
1990 1992 1994 1996 1998 2000 2002 2004 2006
tCO2
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000tons
tCO2 Paper production
UPM in Finland
UPM has reduced its fossil CO2 emissions by 25 % during last 10 years by investing in biofuel based energy generation and in energy efficiency.
Investmentsabt. € 900 mill.
UPM globally
Target set in Kyoto protocol
UPM 20
Fiber – diversified and integrated
Energy – self sufficient and cost competitive
Presentation outline
Important paper production input factors
Logistics – cost competitiveSourcing – global approach
UPM 21
Own logistics network
Transportation handled for the most part by long-term contractual partners– Spliethof– Finncarriers
Regular evaluation of contractual partners– quality of operations and services– environmental, health and safety issues– social responsibility
LOGISTICS Logistics
UPM 22
LOGISTICSEfficient Logistic Corridors
USA700-800 000 t
South America 100-200 000 t
Middle East 300 000 t
Far East500 000 t
Russia + other CIS countries150-200 000 t
outside Western Europe 1.8-2.0 million tons annually
UPM 23
700
800
900
1 000
1 100
1 200
1 300
2003 2004 2005 2006 20079 000
9 500
10 000
10 500
11 000
11 500
12 000
LOGISTICS Costs of delivering own products
€ million
Paper deliveries
Costs of delivering ownproducts
'000 tonnes
+10%
+3%
UPM 24
Fiber – diversified and integrated
Energy – self sufficient and cost competitive
Presentation outline
Important paper production input factors
Logistics – cost competitive
Sourcing – global approach
UPM 25
SOURCINGGlobal Sourcing development roadmap
Global Procurement
groups
1996 - 2000 2001 - 2005 2006 - onwards
Internal benchmarking
OrganisationalDevelopment
CompetenceDevelopment
Centralised
HarmonizedSystems &ProcessesGlobal
CategoryMgmt
• Volunteer Network• Sourcing Directors
for strategic categories• Accountability in mills
• Purchasing fully centralised• Strong business alignment,
expertise and accountability in global category teams
• Harmonized processes• High aspiration level in
achieving savings
Decentralised(coordination)
Decentralised(steering)
UPM 26
PRODUCTION INPUTSSummary
UPM is well positioned in its key inputs:
Energy and local fibre for magazine papersRCP and energy for newsprintChemical pulp for fine papers
with cost efficient, centralized sourcing and logistics
UPM 27
